Fourth International, November 1941

Jack Weber

Capitalist Economy Under Fascism

The world-shaking events of nearly two generations, from the first to the second imperialist world wars, have shattered into smithereens the various attempts of revisionists of Marxism to build a theory of “organized capitalism.” Let us count it as a distinct gain that the old forms of revisionism, which based themselves on a gradual progress from capitalism to socialism, are buried forever from the point of view of serious theory. Kautsky, Hilferding and a host of their followers, tried to make us believe that monopoly capitalism would lead gradually to the planned organization of industry on a social scale. It was necessary merely to permit time to ripen the new industrialism like a fruit which would then fall into the lap of society and benefit all. But far from following the course outlined for it in Kautsky’s theory of super-imperialism, far from eliminating crises, monopoly capitalism has led to chaos, permanent crisis, fascism and war.

The economic theories of the revisionists were the necessary counterpart of their politics of class collaboration, and vice versa. Politics deals with class relations; but class relations are also at the root of economics. As Engels says:

“Here we have an example of a peculiar fact, which runs through the whole of economics and which has caused utter confusion in the minds of the bourgeois economists: economics deals not with things but with relations between persons and in the last resort between classes; these relations are, however, always attached to things and appear as things.”

It is not only natural but inevitable that one’s views on the class relations that exist in society should reflect themselves or attempt to find a material buttress in economics.

The Bankruptcy of Revisionism

Our ideas about society, our consciousness, reflect the social environment. Capitalist society never stands still, and so the ideas about it also never stand still. With the old capitalism disappears the old revisionism. With the new capitalism, beside correct views, appear new forms of revisionism. How interesting it is to note that in the case of Burnham, there was an evolution from the view that the Soviet bureaucracy was something new that represented neither the working class nor the capitalist class, to the view that the fascists also represented neither class and that both kinds of bureaucracy were achieving a revolution in economics, a “managerial” revolution. His economic views followed from his political ones.

History has written finis on the idea of organized capitalism. This has made difficult any further “revision” of Marxism. Today it is necessary for those who attack Marxism to go the whole way: not merely revise, but reject it completely. The Burnhams present us with the view that in the class struggle between the capitalists and the proletariat, the victor will be neither one, but a new class, the managerial class whose germs are found in the totalitarian bureaucracies. This new class is doing away with capitalism. Under its rule, the laws of capitalism no longer apply. Hitler demonstrates before our very eyes that the law of value is being abolished, profits are no longer necessary, indeed fascism has learned to plan economy and thus to eliminate crises from society. As proof of this, the Burnhams insist, we witness the fact that whereas everybody expected Hitler’s manipulation of German currency and credit to end in a great disaster of inflation, no such thing has happened.

It is characteristic of the writers of this variegated school that the more sweeping their interpretations, the broader their claims, the less the trouble they take to present actual statistics, or even to refer to such statistics. It is a glaring fact, for example, that Burnham’s book on Managerial Revolution makes just one solitary reference to figures – and that reference does not even exist!

Our analysis divides itself into two interwoven parts: a presentation of what fascism has actually done; secondly, a running commentary of Marxist interpretation of the trend of capitalist economy. It is not possible to separate these two elements entirely without sacrificing clarity.

Hitler’s Economic Policy

What has been the course followed by German economy since Hitler came to power? The fascists were quite fortunate in coming to power just as a world upturn commenced in the conjunctural economic cycle. The fact that this was a world upturn and not merely a German one, eliminates any false view that the Nazis created this upturn by the application of some new methods all their own. But the upturn developed slowly and did not absorb the more than seven million unemployed German workers rapidly enough. Hitler, the spearhead of German imperialism, began at once to prepare for the coming war. Unlike the new-thinkers, Hitler was well aware that Germany could not possibly solve its economic problems inside the German borders. The solution had to be sought abroad, and the only way imperialism has for seeking its own immediate national salvation is by imposing its will on other countries through war.

At first, in the period intervening between the projecting of the armaments plan and the smooth functioning of the entire machine, Hitler resorted to every single scheme tried by Roosevelt in the New Deal. He tried all the forms of pump priming, the building of tremendous public works, the creation of labor camps for the youth, the subsidizing of agriculture and of exports, etc. In addition Hitler resorted to relief, not as a government project outright, but as a form of charity forced out of people. (Evidently this form of relief must be continued even during the war, as Hitler’s recent inauguration of the campaign for Winter Relief testifies.) But the armaments program was undertaken at a tempo that soon absorbed all the unemployed into the factories. Once the factories were geared to the vast munitions, airplane, tank, etc. production program, there developed an actual shortage of labor. (This took more than three years.) At once the Nazis scrapped unceremoniously all their tommyrot about the place of women in the home. There are more women in the factories and offices of Germany today than ever before in history. By the end of 1939 there were seven million of them at work. At present there are well over eight million at work in industry. Even this was not enough to meet the needs of this type of production. Between 1933 and 1937 Hitler had to attract a million workers from the farms to the factories. (This also despite the “sacred” character of peasant labor.) The result was an actual decline in agricultural output in 1937.

This led to the conscription of youth, male and female, for the farms. Naturally the state did not pay adequately for this labor. Nor did it pay for the half a million workers who were conscripted by Goering in 1938 solely for the purpose of pouring concrete in the Siegfried line. As to class relations let it be said that the Nazis adhere scrupulously in the main to class lines. The well-to-do girl is never conscripted to be sent to the farm, or to a labor camp. Nor is the Junker’s son. There are better uses for him as a “leader.”

Where did the state get the money to carry out these vast plans? There are only three ways for any government to obtain funds: taxation, borrowing, and the printing of fiat money. Nothing frightens the German people, the Nazis not excluded, more than the thought of a repetition of the inflation of 1923. Hence, despite all the cleverness of Schacht and his successors the government has, in the main, adhered to orthodox methods in internal economy. Fiat money has been used, but internally it has been kept at a minimum because of its dangerous possibilities of speedy inflation. The vast bulk of government funds has been raised by taxation and by borrowing. Taxation alone will not raise the tremendous sums necessary for war economy under the capitalist system. But taxation has become a greater burden with each year of the war. In 1939 with a national income of 79 billion Reichsmark total, the taxes amounted to 24 billion. In the fiscal year 1940-41 they were 26 billion or more. At least one-third the national income is now taxed away directly. If we count both the direct and the indirect taxes, the state absorbs 47% or more of the national income. This in itself means a terrific lowering of the standards of living of the masses, but this lowered standard is being made permanent by the distortion of economy wrought by the Nazis.

Fascist Finance

Where the fascists did develop a totalitarian technique suitable for totalitarian war, was in the method of borrowing. Outright confiscation was employed in connection with the Jews, but not at all in the case of capitalists in general. The Nazis passed a law that all savings in the banks must automatically become loans to the government. In addition all profits of firms and corporations above 8% for dividends, must be invested in government loans. This limitation on dividends has been mistakenly interpreted as a control on profits allowed to industry. It is nothing of the sort. When one reads of a seven or eight percent dividend declared by Krupps or Siemens-Halske, this does not mean the profit “earned” by the company, but merely the profit permitted to be distributed to stockholders. The rest (and this amounts to many times the eight percent-especially in big industry) is taken as a loan by the government, or is used most often for plant expansion for war production.

It is this totalitarian technique in borrowing funds that arouses the admiration of those who think that production can be seized hold of and controlled from the financial end alone. Taxation and borrowing between them, the latter to a far greater degree than the former, take all the savings and the surplus production on which profits are based and divert them to war use. It is by analysis of this process that one can best see the way in which war affects the entire economy and above all the living standards of the masses. The funds obtained by the government would be useless unless other means were adopted at the same time to convert the money into the real war fund, into the real sinews of war. For this purpose it is not sufficient to hand money over to the war industries with orders for increased production. All other industries, all raw materials, all consumption goods must be taken into account and methods of controlling the distribution of commodities must be adopted. To achieve the level of production required in the war industries for modern war, production must be cut down drastically in other fields; investments must be regulated as well so as to permit the flow of new capital goods into essential war channels only. Rationing and other devices are used to restrict the ordinary consumption of goods by people.

The Dislocation of the Social Process of Production

The goods produced each year by society must include not only articles that are consumed directly by people, but also the capital goods that have been used up in the process of production. The capital goods take care of the wear and tear of machinery, of the replacement of obsolescent means of production by more efficient modern tools, and of expansion of plants wherever necessary for greater production in the future. This is what Marx terms the “simple and extended” reproduction of used-up capital. War economy changes and distorts this process completely. The savings of society and the surplus value of the capitalists contain the wherewithal to carry out the process of reproduction of used up capital and the expansion of plants. War industry, by diverting all funds (and the Nazis do this most efficiently) to war purposes alone, bring about a rapid deterioration in the ordinary forces of production. At first sight it seems a paradox that the tremendous expansion of production in the war industries should mean the running-down and decay of the social forces of production. But the history of the last war demonstrated this paradoxical process in a way never to be forgotten. The present war is proving even more destructive in this respect since it takes up where the last war left off.

The two basic types of social commodities are the means of production and the articles of consumption(whether these be necessities or luxuries). War adds a third commodity to these: instruments of destruction and extermination. All governments are spending on this third commodity at a rate faster than ever before in history. This requires an enormous shift in economy. In 1935 German production showed a proportion of capital to consumers’ goods of 55% to 45%. By 1938 this had risen to 61.5% as against38.5%. The process has been accelerated since but statistics are not available. This change in composition was not due merely to increases in the capital goods produced, but to decreases in consumers’ goods. So much so that there is an insufficient quantity for the consumption of people. So much so that workers have been thrown out of employment in these industries that are necessary for people but not for war. That is one reason why the Winter Relief campaign must go on. War requires that not only military but economic secrets be kept hidden as well. Complete statistics are therefore lacking, but it is judged that over 75% of present German production goes for war use. Not only is there a drop in the standards of living, but a tremendous deterioration of the means of production for the necessary goods of ordinary living.

The total expenses of the first World War amounted to three hundred billion dollars. The entire wealth of the warring countries was only about twice this sum at the beginning. This national wealth had decreased one-third by the end of the conflict. This time the decrease will be far greater. Since current national income can never cover the expenses of war, the real wealth that is destroyed must come out of the standards of living of the masses and out of society’s fixed capital goods. To some extent the rise in national debt of a country measures the rate of destruction that takes place, although not directly. In the 1ast war the final debt of Germany was 157 billion marks. The Nazis acknowledged some time ago a debt of 80 billions, but the real debt is hidden. Discussing Nazi war financing in Free Europe, K.C. Thaler placed the debt at 130 billion Reichsmarks in April 1941. This is far above the national income.

Nazi statistics are not reliable but they cannot help but reflect the actual processes in production. These can be illustrated in several ways. Industrial production rose 33% between 1928 and 1938. Income went up only 26%. But the production was mostly of capital goods which went up 50% as against only 16% for consumers’ goods. Thus for a 26% higher income there was only 16% more goods. The difference between an ample and a scanty supply of consumers’ goods is only 5%. Since even consumers’ goods were being bought by the government, whose requirements were up 20% by 1938, the supply available for the masses was even less than the figures would seem to indicate. Taking into account the quantity that went to government use, the supply of consumers’ goods in 1938 was actually only 92.8% of what it had been in 1928. Which means that compared with national income, consumers’ goods had dropped one third by 1938. (A 126% income had available for exchange only a 92.8% supply of goods.)

This fact of expanding income and declining consumption is reflected in all statistics. Thus Fay in a series of articles in the magazine Events on the Internal Strain in Germany states that the income of the workers rose 64.2% between 1932 and 1938 but the production of consumers’ goods increased only 29.5%. He shows the distortion of production also. The index for the capital goods industries including arms rose from 45.7 in 1932 to 145.3 in April 1939, but the index for consumers’ goods rose from 74 in 1932 to only 112.8 in April 1939. In short the war industries expand at the expense of normal industry.

The Latest Apologists of Capitalist Anarchy

This is the economy that the Macdonalds present to us as a planned economy, and even a planned economy for use, no less! What a perversion in terms! These people admit that the masses are worse off, but the Nazis, you see, produce what they want, according to plan. What they want happens to be war materials, but we are assured that they could use the same methods for producing anything they choose. Marx used the term planning for use to mean planning production in such profusion that all the needs of the masses would be satisfied. Planning for use would require a tremendous increase in the forces of production whereas fascism is tearing down these forces at an unprecedented rate. There is utter confusion in these new-thinkers concerning the meaning of planning and the distinction between production inside the factory walls and in society as a whole.

Marx drew a distinction between the scientific, orderly planning of production inside the factory and the resulting anarchy of production in the whole of society despite this factory planning. Marx illustrated this from his own day when free competition, relatively speaking, existed, and when the market acted as the blind regulator of social production. As if it were something just discovered yesterday, the new thought group has learned that free competition no longer characterizes our economy. We now have large-scale industrial planning. This is characteristic of monopoly capitalism. True enough, within the sphere of its control, the monopoly trust introduces some order. As Engels wrote in his criticism of the draft of the Erfurt program:

“When we pass from joint stock companies to trusts which control and monopolize whole branches of industry, not only private production comes to an end at that point, but also planlessness.”

Precisely for this reason the era of trustification was looked upon by Marxists as the period of transition when capitalism was beginning to give way to socialism. But one must not confuse the end with the trend. Monopoly capitalism introduces planning of production in an entire sector of economy (each in its own sector), but this still does not and cannot mean control of all economy. Monopolies can in some sense control production for the market (for their own bloated profits), but they cannot control the market itself. The proof of this was the last crisis – and again will be the next one.

It is no accident that the present rejecters of Marxism go back to the literature of the revisionists in support of some of their views. Hilferding is an especially good source. He thought that monopoly capitalism was destined to gain control of all industry without exception, thus ending the blind forces of the market and permitting capitalism to “organize” itself so as to eliminate anarchy of production. In this way the trusts would grow peacefully into socialism. But Engels and Lenin both pointed out that monopolies, while growing out of competition, do not eliminate it but exist over and alongside of it. Lenin warned:

It could not abolish exchange, the market, competition, crises, etc. (One can readily see this through a study on a world scale of the cartels attempting to control sugar, tin, tobacco, oil.) The introduction of monopolies within competitive capitalism makes for further distortion of economy, since the monopolies are able to gather in super-profits at the expense of the rest of economy. Now, in place of Hilferding’s idea, we have one that the very force which tries to preserve private property and monopoly capitalism, fascism, is bringing about planned production for use – against capitalism ! That is, the force entrusted with maintaining the profit system, despite the anarchy of monopoly capitalism – is assisting to end capitalism by having the state take over all enterprises. This is most certainly a method of making black appear white, of calling things by their opposite. Macdonald sees the beautiful planning inside Krupps in the building of tanks and guns – and he calls this war economy a planning for use. It does not seem to occur to him that the very need to carry on war, for which the economy is adapted, is proof of the utter inability to carry on planned production for use.

The Economics of Totalitarian War

War (resulting not infrequently in revolution) is the greatest crisis that the capitalist nation endures. The fate of national capitalism is dependent on the outcome of a war. Modern war in particular demands totalitarian control by the state for its energetic prosecution. The distinguishing characteristic of war economy, as had been pointed out again and again long before the start of war, is the immense extension of the state’s functions. It becomes of necessity the supreme director and the chief customer. It drains off all private savings, monopolizes foreign trade, sets up control of prices and allots raw materials and new investments. Fascism had the great advantage in setting up its war economy of having first rid itself of all mass opposition (effective mass opposition) in advance. But the aim of the fascist state in mobilizing the economy for war is absolutely clear. Its aim is a class aim. Fascism is the executor for capitalist imperialism. But fascism is not alone in the methods used for the mobilization of national economy for war purposes. All capitalist nations act in similar fashion. This war economy is not planned production for use, nor can it be extended into a system of planned production after the war.

We come back to the nature of the control exercised by the fascist state. It is asserted that this control will eliminate crises. This is proved by reference to the fact that the Nazis avoided inflation, serious inflation that everybody predicted must come. While the government remains the chief customer and passes out tremendous orders to industry in advance of production, and brings about a rapid expansion of the war industries, there is no need for the capitalists to worry about a market. They cannot produce fast enough for the present market. Those capitalists who are not in war industry are forced to curtail production or to transfer to the more profitable field. The orders are paid for with borrowed money which appears as an increase in the national debt. Apparently this process of expanding production by the increase of the national debt exerts a real fascination over the minds of some economists. They view the boom period of the economic cycle and generalize it without seeing the forces that are at work undermining the boom. The writer Hitchcock (Harpers Magazine) goes so far as to include the national debt with national wealth as a producer of the national income, since it is used to continually expand production. He calls it a process of keeping capitalism expanding indefinitely by absorbing the enormous yearly savings of society. There is, an exact analogy here with the chain letter scheme. But at least Hitchcock recognizes that capitalism still exists in Germany, that profits continue to flow into capitalist pockets.

But the war cannot last forever. What will happen afterwards? War economy must stop since it is a tremendous strain on the nation and serves no “useful” purpose then. The government debt will then be far, far above the national income, and far above the ability of a depleted national economy to pay. All the governments face economic bankruptcy at the end of the war. Evidently those who think that state control will give the Nazis the ability to throw off the debts and continue the control of production, do not picture the actual economic process. The government has not been able to go ahead with production except with the use of the national wealth mobilized in the form of money and credit gained through taxation and borrowing. Will money disappear after the war? It was possible for the state to obtain money in the period of expanding war production when the national income was rising. But a good deal of the wealth of the large banks and corporations will appear precisely in the form of the national debt after the war. The bankruptcy of the state means the bankruptcy of the national economy as well. Tremendous sums will be required to rebuild the depleted forces of normal production. The “Managerial Revolutionists” seemingly have quite a simple solution for this. The laws of capitalist economy will no longer exist. Money will not be what it once was; it will be merely counters of the government used to plan production. Just how can Burnham make us feel certain that the shadow of money will be able to hire more than the shadow of labor in return? Burnham attributes not revolutionary, but miraculous powers to the fascist totalitarian bureaucracy, which these men are only too well aware they do not possess.

Fascism Aggravates the Contradictions of Capitalism

Even if we assume that Germany will be completely victorious in the war, she cannot continue outright looting such as is being carried on during the war. That would merely kill the goose that lays the golden egg – of surplus value. Pose the matter as one will, one comes back to the use of some form of acceptable, stable money. The idea of the distribution of the national income through the rigid control of prices of goods, the idea of the extraction of surplus value from the working class, – these mean nothing without a universal, impersonal medium of exchange and of value. The alternative to this is not any fancied managerial revolution – if we leave aside proletarian revolution – but the utter breakdown of capitalism and a return to utter chaos and barbarism.

Fascism tries indeed to base itself not on planned production, but on an economy of looting. Germany is to live at the expense of the rest of the world. So great has been the deterioration of machinery within Germany that the first thing done by the conquering armies is to dismantle factories in order to ship the machines to the fatherland. This is a distinct part of fascist “planned economy.” It tries to solve the unbearable contradictions of German imperialism on the backs of the peoples of all Europe. If Germany needs consumers’ goods, then such goods are taken by hook or by crook from the inferior races who must then starve under Hitler’s planning. Are farm laborers needed in Germany? Then send millions of the conquered peoples and soldiers there to act as slave labor. In the methodical looting of all Europe, Hitler does not forget to issue special worthless paper currency abroad to be used by his armies to obtain all they can. In France this currency has been used to buy up whole industries. The planning of German economy under Hitler is quite clear. It means to tear down the industrial forces of all Europe and of all the world for that matter, for the sole purpose of benefiting German industrialism and monopoly capitalism. If fascism had been able to plan its own economy without the fear of crisis in the future, then why was it compelled o go to war? Marxism explains this on the basis that monopoly capitalism faces a crisis of strangulation within its own national borders. Far from being able to plan the national economy, it is forced to seek salvation from its own anarchy by seeking wider markets and fields of exploitation.

The Russian experience has demonstrated for anybody with eyes to see that even where there are no private owners of industry, where truly all the means of production are in the hands of the state, there are tremendous difficulties in the way of the planning of production. The reasons for this difficulty lay not only in the backwardness of Russian economy, but also in the confinement of the forces of production within the bounds of a single country. No bureaucracy can hurdle over these difficulties which are real, material ones that cannot be waved aside by ukase. We repeat, those who suppose that Hitler is endowed with the ability to plan even without complete control of his own economy (the factories are still in the hands of their owners) have made no attempt to understand the nature of the economic problem. Nor have they seriously studied the actual state of German economy.

Fascism Faces Economic Catastrophe

The Macdonalds make quite a point of the fact that Hitler put his generals and state officials in charge of planning, price setting, etc. But it is far more to the point to explain just what methods these planners use in setting prices and how these methods make for planned economy as against the old methods of the monopoly capitalists. The attempt to show any antagonism between the bureaucracy and the monopolists as a class is doomed to abysmal failure. Finance capital still controls the economy and gives its full consent in the procedure of planning and price fixing. Fascist economy is no different in this respect from Rooseveltian economy. Prices have in all cases increased the profits of the capitalist class. The wholesale price index ranged between 90.7 and 96.2 in 1933. Since then it has steadily risen to the all-time high of 107.1 in June 1939. Without knowing the actual index at present, we predict with assurance that it has gone even higher.

The German Institute of Business Research (March 13, 1940) states that it was the danger of an inflationary boom in 1936 that led to the institution of measures of price control. The article points out that price control is not something rigid, but permits adjustments for elasticity. It illustrates by showing that prices dependent on imports (supplies of raw materials from abroad) are exempted since they are dependent on the world market. This means the exemption of textiles, leather, rubber, non-ferrous metals, etc. The prices of agricultural products were raised above world market levels in order to encourage farming. For the same purpose the prices of fertilizer and agricultural machinery were lowered a little. In all of this there is nothing different from what has been and is being done in every other country. Also the Institute tells us that the cost of living was only 7.9% higher in July 1939 than in July 1933. The cost of alimentaries however went up faster, being 10% higher. After these questionable statistics we are suddenly told:

“In war the changing of production to new lines of manufacture and to new methods (ersatz, buna, artificial fibre) increased import prices, and limitation of private production is bound to affect the price situation in many branches of industry.”

Indeed, sad to relate, when the war started the price regulations were all but forgotten and even government departments bid against each other for supplies. This happened in the very industries that should have been most strictly under control; namely, the war industries. Thus a machine-gun that had sold for around 80 marks previously, suddenly jumped in price to 160 marks.

Guérin in his book on Fascism and Big Business mentions the memorandum sent by the big industrialists to Hitler in 1937. This document pointed to the depreciation of the mark to 40% of its former value and warned sharply against inflation. (In short Hitler was doing not his own but their bidding in setting prices to avoid inflation.) The mark is worth even less today. Secretary of State Brinkman also had visions of a serious economic catastrophe in 1938:

“The first dangerous cause of inflation comes into existence when the supply of food, clothing and housing does not cover the indispensable minimum.”

Evidently the standards of living had fallen well below sheer subsistence level. Brinkman wanted the facts faced, not the statistics, for he adds:

“It is also a fact that prices and indices reported weekly or monthly in our statistical publications do not reflect the actual state of things. Every purchaser knows that prices are rising, giving the lie to statistics. This should not be. Only things that are within the limits of possibility should be demanded of the population.”

His next remark shows the deterioration of the normal forces of production:

“The situation in private economy is critical. For one thing, there are far more orders than can be filled in a lifetime. For another, production has deteriorated to a much greater extent than we can answer for. These are unmistakably genuine inflationary symptoms, and it is high time to call a halt and to promote exports.”

The war broke just in time for Hitler to postpone the consequences of his “planning” to a later day. The visions of another 1923 drove Brinkman to insanity six weeks after he took the place of Schacht.